Government sticks to 5.5% GDP drop this year

MANILA, Philippines — The government’s economic planning body is standing pat on its forecast 5.5 percent gross domestic product (GDP) contraction this year despite the emergence of other risk factors on top of the prevailing COVID-19 pandemic.

In a presentation before the Senate committee on finance yesterday, acting Socioeconomic Planning Secretary Karl Chua said the prolonged lockdown intended to control the spread of the coronavirus would weigh heavily on economic performance this year by way of subdued consumer and business confidence.

“Quarantine restrictions will have a significant impact for the rest of the year,” he said.

He said the economy is seen to contract between 4.5 percent and 6.6 percent as various internal and external risks pile on top of the prevailing pandemic.

“GDP growth (this year) is expected to be around minus 5.5 percent, a contraction with a band of 4.5 percent to 6.6 percent, before recovering to around 6.5 percent to 7.5 percent (growth) in 2021 to 2022.”

Aside from the pandemic, other internal risks remain such as weather disturbances and the possible occurrence of La Niña in the fourth quarter of the year, and the resurgence of animal diseases such as African swine fever.

Disruptions in the transport value chain and logistics,  as well as the limited absorptive capacity of agencies implementing the Bayanihan 2 stimulus package also pose risks to economic performance this year, Chua said.

On the external front, geopolitical tensions, particularly the trade war between US and China, and lower remittances from overseas Filipino workers also pose serious threats to the domestic economy.

Chua said an effective resumption of public transportation would be crucial to recovery to improve mobility.

“It is not enough to just open the economy and bring people back to work. It is also important to revive public transportation sufficiently and safely,” he said.

“There is also a case for helping people to go back to work. The percentage of people actually going back to work has actually dropped by minus 40 percent. Some of them are walking to work or working from home but we can do more.

The Philippine economy plunged into a recession in the second quarter, with output contracting by a record 16.5 percent after a severe coronavirus lockdown paralyzed 75 percent of the economy during the period.

After the downward revision of first quarter economic decline to 0.7 percent, this brought the first half contraction average to around nine percent.

It is widely expected that the contraction will be slower in the third quarter as the economy gradually reopens.

However, Metro Manila and surrounding growth areas were placed under a strict lockdown anew for two weeks in August, forcing businesses that have just reopened to close again.

Government data showed unemployment level easing in July from a record high in May in line with the reopening of the economy.

This, however, still remained high at 10 percent, translating to around 4.6 million Filipinos who were jobless in July. Employment conditions in the National Capital Region (NCR)— the country’s economic powerhouse—worsened during the month.

Industrial output also remained on the decline in July although at a slower pace, indicating a slow recovery in the sector.